Royalty tax deters investment: report

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 27 Apr 2017   Posted by admin

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Chevron’s Gorgon LNG project.


A PROPOSED 10 per cent royalty imposed on Australia’s oil and gas industry would damage existing projects and drive away future investment in the sector, according to consultancy firm Wood Mackenzie.

The report, commissioned by industry body the Australian Petroleum Production and Exploration Association (APPEA) found that a 10 per cent royalty tax would harm the major developed liquefied natural gas (LNG) projects of Gorgon, Pluto, Wheatstone, Prelude and Ichthys.

Wood Mackenzie said that based on a long-term flat oil price assumption of $US60 per barrel, reduced internal rates of return (IRR) would challenge the ability for companies to justify taking projects forward.

“It would wrong to think that there will be no effect on existing developments,” the report stated.

“There will be additional investment required for these projects to maintain future production. However any incremental investment that will be required in the future will be put at risk by the introduction of a 10 per cent royalty.

“Not only would the economics of these incremental projects be adversely affected by changes to the fiscal terms, but Australia would be seen as being much more fiscally unstable, with a willingness to let companies invest and then to change the terms after companies have made these massive investments.”

APPEA chief executive Dr Malcolm Roberts said imposing a new tax amounts to a retrospective change to the arrangements that have been in place for 30 years.

“Such a glaring case of sovereign risk would deter footloose international investors,” Dr Roberts said.

“Australia is already a relatively high-cost place to produce oil and gas – adding political risk is likely to make us uncompetitive – Australia competes with 17 other LNG-producing countries.”

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